Global Survey finds South African investors optimistic about stocks in 2014, but focused on physical assets

One of the largest surveys of its kind, the 2014 Franklin Templeton Global Investor Sentiment Survey, polled 11,113 investors in 22 countries across Africa (including South Africa), Asia Pacific, the Americas and Europe on their current attitudes towards investing and their expectations for 2014 and the decade ahead.

 

According to the survey, investors in South Africa have a positive stock market outlook for 2014, with about two-thirds of investors expecting the market to be up in 2014. South African investors have a fairly positive outlook on expected rates of return for this year (12.4%) and over the next 10 years (16.9%) and are highly optimistic about reaching their financial goals (87%). Investors say that property, stocks, precious metals and non-metal commodities will perform best in 2014 and over the long term.

 

Feedback from the survey shows that investors in South Africa think that Asia will have the best equity opportunities this year and over the long term. And, after Asia, local investors are looking at North America to provide the best returns in 2014, despite their concerns about the large fiscal debt in the U.S.

For fixed income opportunities, they believe the best returns will be in the U.S. and Canada in the coming year, despite the concern about the Federal Reserve’s bond buyback programme. After North America, they think the best fixed income returns will be at home this year. Over the next ten years, investors believe South Africa and Asia will offer the best fixed income returns/opportunities.

 

Five years after the onset of the 2008-2009 market downturn, investors continue to show signs of risk aversion, despite an optimistic outlook for the future. Globally, 52 percent of investors are planning to become more conservative with their strategies this year, taking on less risk with the potential of earning lower returns. However, this risk aversion is less pronounced than last year when the annual survey showed that 57 percent of investors planned to be more conservative with their investments.

 

This trend towards conservatism runs counter to the fact that most investors expect better stock market performance and higher returns from their investments this year, as well as the fact that four out of five investors feel optimistic about reaching their financial goals.

 

"In the long term, the greatest risk investors run is remaining too risk-averse for too long. Building portfolios based on short-term phenomena, not long-term realities, could put them in danger of falling well-short of their goals. A smart approach to managing investment risk is not to categorically avoid risks but to ensure that risks taken are intended, understood and appropriately compensated with an eye on achieving longer-term investment goals.” said Jo-Anne Bailey, Country Manager: Africa, Franklin Templeton Investments.

 

According to the survey, almost an equal number of South African investors plan on adopting a more conservative investment strategy in 2014 as opposed to those planning to adopt a more aggressive one. Men are more likely to adopt an aggressive approach, while those with the lowest amount of investable assets are more likely to adopt a more conservative approach.

 

 

The survey has shown that investor perception often diverges from reality, a fact that may impact investors’ ability to make well-informed investment decisions. Just over half (55 percent) of investors believe their local stock market was up last year, when in reality, 17 of the 22 markets surveyed (77 percent) experienced positive performance. In South Africa, 50 percent of investors believed the market was up last year, despite the fact that is posted negative returns.

 

Globally, investors’ outlook for their local stock market this year was more optimistic, with 62 percent believing the market will experience positive performance. Notably, following a down year, Indian investors showed a markedly higher level of optimism than other investors, with over 80 percent expecting 2014 to be a bright year for local stocks.

 

Investors in South Africa have a positive stock market outlook for 2014, with about two-thirds of investors expecting the market to be up in 2014. However, while some South African investors are being cautious, with 45% planning to be conservative in their investment approach in 2014, almost an equal number are planning to be aggressive.

Consistent with 2013 survey findings, stocks, real estate and precious metals topped the list of asset classes that investors expect to perform best in the year ahead. Over half (55 percent) of investors believe stocks will be among the top-performing asset classes this year, up from 50 percent in 2013. Precious metals fell out of favor with some investors this year, dropping from 53 to 39 percent, while investors’ outlook for real estate stayed fairly consistent year-over-year.

 

Meanwhile, the survey also shows that South African investors think real estate will perform best in 2014, followed by precious metals and stocks. Non-metal commodities are expected to perform well over the next 10 years.

1. Real Estate – 65 percent

2. Stocks – 48 percent

3. Precious metals –44 percent

Of the countries surveyed, investors in Japan and Hong Kong showed the greatest preference for stocks, with over 77 percent ranking stocks among the top three asset classes for expected 2014 performance. Greek investors had the most optimistic outlook for precious metals, while Australian and Malaysian investors showed the strongest preference for real estate investments this year.

 

On a whole, global investors indicate they are most likely to add real estate, home country and emerging market equities, as well as precious metals to their portfolios in 2014.

 

Thirty percent of global investors plan to add or increase their exposure to domestic equities while nearly one-quarter (23 percent) plan to increase their investment in emerging market equities and precious metals.

 

The survey also highlighted that South African investors are looking to increase exposure in emerging market equities, real estate as well as precious metals to their portfolio.

While international investors see the most potential in stocks this year, they also recognize the risks involved with investing in the asset class. Globally, stocks, the US dollar and alternatives topped investors’ lists of the asset classes they believe will carry the most risk this year.

 

The riskiest asset class expectations for South African investors this year include government securities, the U.S. Dollar, stocks and precious metals. Local investors between the ages of 45-54 are the most likely to think government securities are the riskiest investments in 2014.

 

"Renewed enthusiasm for stocks is encouraging, as many investors will need the higher potential returns stocks have historically provided over the long term in order to reach their financial goals. It is also clear that investors recognize higher returns are likely accompanied by higher risk,” said Bailey.

 

"In today’s volatile investment environment, many investors are seeking additional ways to diversify their portfolios, including the addition of lower correlation total returns offered by alternative investments. Despite the perceived risks, we believe investors are becoming better informed about the diversification benefits of alternative investments when added to a portfolio of traditional assets,” added Bailey.

 

Globally, two-thirds of investors believe the best equity and fixed income opportunities will be found outside their home countries this year, echoing findings from Franklin Templeton’s 2013 survey.

 

Investors in South Africa and Italy showed the greatest interest in investing abroad, with 85 percent believing the best opportunities exist beyond their borders. At the other end of the spectrum, investors in the US were the least keen on investing abroad this year, with over 60 percent believing the best investment opportunities will be found within the States. The US market was up over 30 percent[1] last year and US investors were among the most likely to believe interest rates will rise this year, factors which may be contributing to their home country bias for equity and fixed income investments.

 

When asked to rank their top concerns about investing in Europe and the US, global investors showed the greatest concern about government fiscal issues and their drag on the economy.

 

When considering European investment opportunities, 62 percent of global investors ranked "euro zone debt crisis” as their top concern. "Slow economic outlook” (46 percent) and "general market volatility” (35 percent) rounded out the top three concerns. European investors (66 percent) were the most likely of all regions to find the euro zone debt crisis as a top concern about investing in the region.

 

When considering the US, 60 percent of global investors ranked "large fiscal debt” as their top concern, followed by "slow economic outlook” (40 percent) and "tapering of the Federal Reserve’s bond buying program” (39 percent). At 66 percent, investors in the U.S. and Canada were the most likely to be concerned about the large fiscal debt. Investors in Asia were significantly more concerned about the Fed taper than the other regions surveyed, with 45 percent ranking this among their top concerns about investing in the States. Also, 50 percent of Latin American investors listed "large fiscal debt” as the top concern about investing in the US.

 

The survey results show that, globally, investors who work with a financial advisor have more diversified portfolios and are more likely to invest outside their home countries than those who don’t work with an advisor. They’re also more likely to be optimistic about reaching their financial goals and have higher expectations for their investment returns. "Navigating global markets can be a complex endeavor. These survey results show investors can benefit from working with a financial advisor to make fully informed investment decisions to appropriately position their portfolios,” said Greg Johnson, chairman, CEO and president of Franklin Templeton Investments.